Technical Analysis Fallacy

hi imjscn,
thx for your update of fti sir. wish him a good rest.
regards.

Just a disclaimer... I'm nowhere near a pro in all this so these are just my basic and perhaps incorrect understandings of the way things work. I'm trying to figure out that post myself so here it goes...

To try and understand all of this a little better, I went back to the basics so hopefully I’m on the right track with this one...

A dealer is a person who makes the market correct? So who does he make the market for? In FX, the dealers’ customers are companies (MNCs - multinationals) who are entering the market to hedge their FX risk. So... lets say you are a car maker in the US and you sell cars internationally e.g. to Japan. In a situation like this, your business will suffer if the yen goes down... correct? So in order to fix this problem you can fix your exposure to the risk you go short on the yen. That way, if the yen goes down, you lose money in your business due to the lower exchange rate but you make back the same amount in the profits form your FX short position.

So... lets say the market is indeed bearish for the yen and you (car maker) sell some insurance for your business at 80 for example. You've just sold 1 million USD worth of Yen i.e. the dealer has purchased 1 million USD from you and sold back 80 million yen to you. Now his books are long Yen and short USD in a bear market for the Yen and a bull market for the USD. Lets say the price moves to 75, he has made a loss on his initial trade. Lets say someone else (another car maker) at 80 realises they’re going to be screwed as well if the yen goes down so he calls the dealer and sells 160 million yen. Now the dealer has 3 million USD which can only buy him 160 + 75 = 235 million yen at the 75 price level yet he has handed out 80 + 160 = 240 million Yen so he is worse of by 5 million yen at this price point. As prices continue to go up for the yen in a bear market, he keeps losing money i.e. “their book keeps getting bigger short, but their average cost of being short keeps going up.” However, as soon as prices reverse and the trend resumes, when prices reach new highs, he has made a handsome profit.
The first point form all this is the reasoning behind having a large amount of capital. My understanding of the reason for this is simply... you need lots of capital because you don’t know how much the retrace against the trend is going to go and as a result how big of a loss you will make in the interim until favourable prices resume.

So in your EUR/USD example, what we have is a situation opposite to that above i.e. the dealer is getting customers (companies) which are shorting the market making him long in the EUR and short USD.

Several questions arise for me from this discussion.

1.)Why are companies continuing to short yen during retraces in bear markets? Yes, companies don’t speculate prices when entering markets as it’s not part of their business but I would imagine their treasury guys would know how trading works and wait for the best opportunity to enter a hedge trade no?

2.)Don’t dealers enter an opposite trade immediately? Or is it the case that lets say we have a perfect trend where prices don’t have any volatility and just keep going down making it impossible for the dealer to enter an opposite trade at higher levels so they HAVE to wait for the trend to resume?

3.)In a bull market, are there not more buyers than sellers? So if this is the case, I’m a bit confused about what I wrote. Why? Because if we have more buyers than sellers, then that would mean that although the hedgers are indeed making the dealer long in the right direction, there are ?MORE? who are making him adversely short in a bullish trend as in the EUR/USD example? So basically, the way I see it, the dealer tries to get more losing speculators (or sitting ducks hence don't put stop losses???) as customers and as many hedgers as possible?

An additional point which I would like to finish on which relates back to the earlier part of the reply i.e. make market for retraces. The reason why retraces are good for the dealer is because it enables him to enter his customer’s orders at levels more favourable to the dealer because dealers also get speculator customers who have the same position as the dealer i.e. in a bear market in the previous example... a good speculator will be short yen and long USD which means that the dealer must have gone long yen and short USD to fill their order. So to move the market in their direction in order not to get killed or get into a lot of trouble, the dealer plays around with spreads to an extent which basically makes trading for parties that he wishes to block out of the market and hence prevent them from contributing to price moves they don’t want at the time.

I like your stories.
I'm still praying that I might not be more wise than pious.

what the...

just a friendly piece of advice mate, please listen to what you're saying here...

before you learn to run, i suggest you must learn how to stand and walk first...

forget about the dealer(s)... understand and accept who they are... they're there to help you get into the market and play with forex... end.

focus on yourself... learn AOW-art of war

understand market structure... do research of who owns who...

and read and read and read again this thread until you will understand fully and wholeheartedly what this thread is all about... most of the people here in this community are very helpful if you approach them correctly with a valid and logical questions in hand... they'll be more than willing to do extra mile to assist you on your learning curve...

and lastly when you're just ready... or perhaps when you feel and think you are ready to do the real thing... you must have an adequate capital...

... not until then that you're trading live, you will never learn the proper mindset...

goodluck to you!!!


p.s. you lost me about hedging

I thought that part of understanding the market structure meant understanding who the participants are and what their motivations are so that you would be better able to tell what they might want to be doing at any one given time?

i have a copy of the software in question. I would be more than happy to help if I can.
I won't distribute any copies of it as I am a member of that paid forum. But if I can help
please let me know or PM me exactly what you need and I'll see if I can help the TAF
family.

multinationals in my case. you have great patience..

Thank you for showing the way. I have a great time seeing the candles, revealing their path to me now , after your live commentary session.
Get well soon, my mentor

Just learn to dance that is the best advice FTI has given anyone. There is no need to over think trading.

And another thing you give dealers way to much respect. I've known dealers who are not good traders. I could trade circles around them. They simply execute orders for customers and thats about it. The get a steady paycheck and never really work on developing themselves as good traders as many retail traders painstakingly do.

If you want to learn market structure read about market profile and try to apply it to the proper markets not fx until you have mastered the methodology. I was taught methods of profile by an exchange member who is an amazing t note- t bond trader. I wont even come close to making in two years what he makes in a week.Fixed income, sp future or ags are where you should be learning this style. The 10 year note is probably one of the best financial markets to trade profile with, the bund isn't to shabby either. Now after years and years I see those profile patterns in the FX market so I know where professional interest is. Profile is much much more than POC and other static lines that most think it is. Trading off POC is no different than trading off pivot points. Good luck no real edge hand over your hard earned money. Profile really indicates where professional interest is and where good traders are holding shitty inventory and be sure under normal market conditions they will be able to scratch their trades which is exactly what they will do.

@M i dont like the score.....we needed more....no idea why this low score....as in trading and we choked....


Darn....


V

Hmm interesting... the more I ask, the more I realise I don't know. I don't usually ask questions... I think it's pride or something but I see how this has affected me! Just a question... what is POC?

Can u make a one Big PDF copy of this thread but printable version

http://www.forexfactory.com/printthread.php?t=57639

till the last page??

V

Niels,
there u go.
Sir Mike's a kind soul.

This should keep you busy for a while. Each one offers an opportunity to carefully develop an edge. These are just definitions one could write a whole book on each definition.

POC = Point of Control
Price at which the most TPOs occur in the Market Profile chart
during the previous day. The prices that saw the most activity. Visually the
longest horizontal line.

VA = Value Area
Range of prices containing 70% of TPO's in a profile.
The Value Area is where price was accepted by the "majority" of the market participants.

VAH (or UVA) = Value Area High
Highest price of previous day's Value Area.

VAL (or LVA) = Value Area Low
Lowest price of previous day's Value Area

DPOC = Developing POC , similar to POC
Price that occurs most often during current day. This is a
dynamic price recalculated with each price tick.

DVA = Developing Value Area, similar to VA
Price range containing 70% of the current days market activity.
This is a dynamic price recalculated with each price tick.

IB = Initial Balance
Price action occurring in the 1st 60 minutes of trading = completion of 1st 2 market profile letters.

RE = Range extension
Price action extending beyond the Initial Balance.

TPO = Time Price Opportunity
Letters or a point on a Market Profile chart where price has traded, often represented by letters A,B,C,D,E,F,G,H,I,J,K,L,M,N -each letter represents a 30 minute period used to build the market profile. The letter is known as a TPO

Let me reboot into a windows platform and see what I can do. Never used the software before so it may take a bit. I'll keep you updated.

Thanks for the kind words Supreme. Can always count on you to have something positive to say.

Thanks

i think their tactic is readable , try for boundaries when runrate is below 4.5 till then rotate strikes...

Another great day in the euro! Very clear technical sells in Asia, London and New York sessions. Lately it seems I can do no wrong are you guys experiencing the same type of trade this week? Thats usually a bad sign that I'm going to have to take a major fall ego getting inflated. It just seems to easy and we all know that the market must always be respected or your bound to get into trouble.

here in the aussie in the principle of professional interest scratching a trade. 1.0300 was a place where shorts were taken or supply was prevalent. They had to take some heat. But you can be sure in this environment they will not be taken deep they will be given a strategic retreat. Why is that? Because of the structure of the markets and risk. If there weren't retracements like that liquidity would not exist as it does. Thats one of the reasons retracements take place to facilitate business from all entities.

Yup...now only thing they have to revolve the strike and keep wickets in hand....

Enough overs to win....they got a good start...

V